Robert Howell: First, Try Passing Broader Tax Reforms

Should the U.S. offer companies a “repatriation holiday” to encourage them to bring cash back from overseas?

My highest preference would be for the Congress to pass corporate tax reform legislation that would eliminate the various so-called corporate tax loopholes, which really are legal aspects of the tax code that do benefit certain industries and, even, specific companies; move to a territorial tax system, which would require U.S. companies to pay taxes to the jurisdictions in which they record profits; and to reduce the statutory corporate tax rate to, say, 25%. Should that not be possible to achieve in the current legislative term, then legislation similar to the “Job Creation Act” of the early 2000s would be desirable so that companies with money kept overseas bring it back to the U.S. At 35%, most companies doing business overseas leave the cash generated overseas; at 0%, they would bring it all back. There is clearly some intermediate rate which would encourage a significant portion to be repatriated, which would result in a significant inflow of corporate taxes to the U.S. Treasury. My guess is that would be 10-15%. After-tax money brought back to the U.S. could be reinvested by the firms in the U.S.; used to possibly hire additional workers, if necessary; or returned to shareholders to be spent by them in the U.S.

Dr. Robert A. Howell is the David T. McLaughlin, D’54, T’55, distinguished visiting professor of Business Administration, Tuck School of Business at Dartmouth and Senior Partner of Howell Group LLC.